Accessibility Statement Skip Navigation
  • Why PRWeb
  • How It Works
  • Who Uses It
  • Pricing
  • Login
  • GDPR
  • Create a Free Account
Return to PRWeb homepage
  • News
  • Resources
  • Contact
When typing in this field, a list of search results will appear and be automatically updated as you type.

Searching for your content...

No results found. Please change your search terms and try again.
  • News in Focus
      • Browse News Releases

      • All News Releases
      • Multimedia Gallery

      • All Multimedia
      • All Photos
      • All Videos
  • Business & Money
      • Auto & Transportation

      • Aerospace, Defense
      • Air Freight
      • Airlines & Aviation
      • Automotive
      • Maritime & Shipbuilding
      • Railroads and Intermodal Transportation
      • Supply Chain/Logistics
      • Transportation, Trucking & Railroad
      • Travel
      • Trucking and Road Transportation
      • View All Auto & Transportation

      • Business Technology

      • Blockchain
      • Broadcast Tech
      • Computer & Electronics
      • Computer Hardware
      • Computer Software
      • Data Analytics
      • Electronic Commerce
      • Electronic Components
      • Electronic Design Automation
      • Financial Technology
      • High Tech Security
      • Internet Technology
      • Nanotechnology
      • Networks
      • Peripherals
      • Semiconductors
      • View All Business Technology

      • Entertain­ment & Media

      • Advertising
      • Art
      • Books
      • Entertainment
      • Film and Motion Picture
      • Magazines
      • Music
      • Publishing & Information Services
      • Radio & Podcast
      • Television
      • View All Entertain­ment & Media

      • Financial Services & Investing

      • Accounting News & Issues
      • Acquisitions, Mergers and Takeovers
      • Banking & Financial Services
      • Bankruptcy
      • Bond & Stock Ratings
      • Conference Call Announcements
      • Contracts
      • Cryptocurrency
      • Dividends
      • Earnings
      • Earnings Forecasts & Projections
      • Financing Agreements
      • Insurance
      • Investments Opinions
      • Joint Ventures
      • Mutual Funds
      • Private Placement
      • Real Estate
      • Restructuring & Recapitalization
      • Sales Reports
      • Shareholder Activism
      • Shareholder Meetings
      • Stock Offering
      • Stock Split
      • Venture Capital
      • View All Financial Services & Investing

      • General Business

      • Awards
      • Commercial Real Estate
      • Corporate Expansion
      • Earnings
      • Environmental, Social and Governance (ESG)
      • Human Resource & Workforce Management
      • Licensing
      • New Products & Services
      • Obituaries
      • Outsourcing Businesses
      • Overseas Real Estate (non-US)
      • Personnel Announcements
      • Real Estate Transactions
      • Residential Real Estate
      • Small Business Services
      • Socially Responsible Investing
      • Surveys, Polls and Research
      • Trade Show News
      • View All General Business

  • Science & Tech
      • Consumer Technology

      • Artificial Intelligence
      • Blockchain
      • Cloud Computing/Internet of Things
      • Computer Electronics
      • Computer Hardware
      • Computer Software
      • Consumer Electronics
      • Cryptocurrency
      • Data Analytics
      • Electronic Commerce
      • Electronic Gaming
      • Financial Technology
      • Mobile Entertainment
      • Multimedia & Internet
      • Peripherals
      • Social Media
      • STEM (Science, Tech, Engineering, Math)
      • Supply Chain/Logistics
      • Wireless Communications
      • View All Consumer Technology

      • Energy & Natural Resources

      • Alternative Energies
      • Chemical
      • Electrical Utilities
      • Gas
      • General Manufacturing
      • Mining
      • Mining & Metals
      • Oil & Energy
      • Oil and Gas Discoveries
      • Utilities
      • Water Utilities
      • View All Energy & Natural Resources

      • Environ­ment

      • Conservation & Recycling
      • Environmental Issues
      • Environmental Policy
      • Environmental Products & Services
      • Green Technology
      • Natural Disasters
      • View All Environ­ment

      • Heavy Industry & Manufacturing

      • Aerospace & Defense
      • Agriculture
      • Chemical
      • Construction & Building
      • General Manufacturing
      • HVAC (Heating, Ventilation and Air-Conditioning)
      • Machinery
      • Machine Tools, Metalworking and Metallurgy
      • Mining
      • Mining & Metals
      • Paper, Forest Products & Containers
      • Precious Metals
      • Textiles
      • Tobacco
      • View All Heavy Industry & Manufacturing

      • Telecomm­unications

      • Carriers and Services
      • Mobile Entertainment
      • Networks
      • Peripherals
      • Telecommunications Equipment
      • Telecommunications Industry
      • VoIP (Voice over Internet Protocol)
      • Wireless Communications
      • View All Telecomm­unications

  • Lifestyle & Health
      • Consumer Products & Retail

      • Animals & Pets
      • Beers, Wines and Spirits
      • Beverages
      • Bridal Services
      • Cannabis
      • Cosmetics and Personal Care
      • Fashion
      • Food & Beverages
      • Furniture and Furnishings
      • Home Improvement
      • Household, Consumer & Cosmetics
      • Household Products
      • Jewelry
      • Non-Alcoholic Beverages
      • Office Products
      • Organic Food
      • Product Recalls
      • Restaurants
      • Retail
      • Supermarkets
      • Toys
      • View All Consumer Products & Retail

      • Entertain­ment & Media

      • Advertising
      • Art
      • Books
      • Entertainment
      • Film and Motion Picture
      • Magazines
      • Music
      • Publishing & Information Services
      • Radio & Podcast
      • Television
      • View All Entertain­ment & Media

      • Health

      • Biometrics
      • Biotechnology
      • Clinical Trials & Medical Discoveries
      • Dentistry
      • FDA Approval
      • Fitness/Wellness
      • Health Care & Hospitals
      • Health Insurance
      • Infection Control
      • International Medical Approval
      • Medical Equipment
      • Medical Pharmaceuticals
      • Mental Health
      • Pharmaceuticals
      • Supplementary Medicine
      • View All Health

      • Sports

      • General Sports
      • Outdoors, Camping & Hiking
      • Sporting Events
      • Sports Equipment & Accessories
      • View All Sports

      • Travel

      • Amusement Parks and Tourist Attractions
      • Gambling & Casinos
      • Hotels and Resorts
      • Leisure & Tourism
      • Outdoors, Camping & Hiking
      • Passenger Aviation
      • Travel Industry
      • View All Travel

  • Policy & Public Interest
      • Policy & Public Interest

      • Advocacy Group Opinion
      • Animal Welfare
      • Congressional & Presidential Campaigns
      • Corporate Social Responsibility
      • Domestic Policy
      • Economic News, Trends, Analysis
      • Education
      • Environmental
      • European Government
      • FDA Approval
      • Federal and State Legislation
      • Federal Executive Branch & Agency
      • Foreign Policy & International Affairs
      • Homeland Security
      • Labor & Union
      • Legal Issues
      • Natural Disasters
      • Not For Profit
      • Patent Law
      • Public Safety
      • Trade Policy
      • U.S. State Policy
      • View All Policy & Public Interest

  • People & Culture
      • People & Culture

      • Aboriginal, First Nations & Native American
      • African American
      • Asian American
      • Children
      • Diversity, Equity & Inclusion
      • Hispanic
      • Lesbian, Gay & Bisexual
      • Men's Interest
      • People with Disabilities
      • Religion
      • Senior Citizens
      • Veterans
      • Women
      • View All People & Culture

  • Hamburger menu
  • Cision PRWeb provides efficient communication tools to continuously engage with target audiences across multiple online channels
  • Create a Free Account
    • ALL CONTACT INFO
    • Contact Us


      11AM ET Sunday – 8PM ET Friday

  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • News in Focus
    • Browse All News
    • Multimedia Gallery
  • Business & Money
    • Auto & Transportation
    • Business Technology
    • Entertain­ment & Media
    • Financial Services & Investing
    • General Business
  • Science & Tech
    • Consumer Technology
    • Energy & Natural Resources
    • Environ­ment
    • Heavy Industry & Manufacturing
    • Telecomm­unications
  • Lifestyle & Health
    • Consumer Products & Retail
    • Entertain­ment & Media
    • Health
    • Sports
    • Travel
  • Policy & Public Interest
  • People & Culture
    • People & Culture
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR
  • Send a Release
  • Sign up
  • Log in
  • Resources
  • RSS
  • GDPR

Franchisors Can Shield Disclosure of Parent Company Financials, Says LeClairRyan Attorney
  • USA - English


News provided by

Parness & Associates

Jun 27, 2017, 04:00 ET

Share this article

Share toX

Share this article

Share toX

Tom Pitegoff
Tom Pitegoff

New York, NY (PRWEB) June 27, 2017 -- Franchisors selling franchises in the U.S. may have some options to avoid including their parent company’s audited financial statements in Item 21 of the Franchise Disclosure Document (FDD), but the company structure should be carefully considered, warns Thomas M. Pitegoff, Senior Counsel and co-chair of the franchise industry team of national law firm LeClairRyan.

If the franchisor wants to avoid disclosing parent company financials and protect it from liabilities of the franchise subsidiary, the simplest approach is to be sure that the parent does not perform any post-sale obligations

Post this

The audited financial statements of a franchisor must generally be disclosed in the FDD for U.S. offerings, writes the New York-based Pitegoff in a recent blog, When are Parent Company Financial Disclosures Required? His post appears in the firm’s Franchise Alchemy, which focuses on franchise law, franchise agreements and related issues.

“But if a franchisor does not want to do this, the parent-company financials can be used instead,” Pitegoff explains. “This is easily done when the parent company is a public company that already has audited financials. But most franchisors are not public companies, are not likely to have parent-company audited financials, and would prefer not to incur the added expense of auditing a group of companies instead of just the franchisor entity. The franchisor may also want to shield its parent company from liability to franchisees.”

Still, the Federal Trade Commission Franchise Rule requires parent company financial disclosures in certain cases, including if the parent “commits to perform post-sale obligations for the franchisor or guarantees the franchisor’s obligations,” Pitegoff notes. “So, if the franchisor wants to avoid disclosing parent company financials and protect the parent from the liabilities of the franchise company subsidiary, the simplest approach is to be sure that the parent does not perform any post-sale obligations of the franchisor to the franchisee.”

To do this, a franchisor could ensure that any such post-sale obligations—including supplying specified equipment, goods, inventory or services to franchisees—are performed by the franchisor itself or an affiliated company.

Parent company financials are also not required when an affiliate is the supplier and the affiliate does not guaranty the obligations of the franchisor. “For this reason, many franchisors will have a holding company that owns both a supply company and a franchisor entity, as well as an operating company that owns the ‘company’ outlets,” explains Pitegoff. “These are affiliated companies or sister companies.”

Many new franchisors form a new entity to be the franchisor, rather than the company that has been operating the business through company-owned locations. In this case, the first FDD can include an audit of the newly-formed franchisor’s opening balance sheet. In most states— but not New York—the opening balance sheet may be unaudited.

A franchisor that prefers to not disclose its own financials has another option: including financial statements of an affiliate, if the affiliate “absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement.” But a franchisor taking this approach still has to disclose the financials of its affiliate or its parent company.

In any case, avoiding disclosure of affiliate company financial statements does not mean that no financial disclosures of affiliates are required. The FDD still requires disclosure of required purchases from the franchisor or its affiliates. This includes disclosing the total revenue, revenues from all required purchases, and the percentage of total revenues that the franchisee or its affiliates receive from required purchases. This is a meaningful disclosure, but far less comprehensive than audited financial statements of the affiliate.

Aside from the financials, other affiliate disclosures are required in the FDD’s Item 1 (the franchisor and any parents, predecessors and affiliates); 3 (litigation); and 4 (bankruptcy). Further, Items 5 (initial fees), 6 (other fees) and 7 (estimated initial investment) require disclosure of payments that must be made to affiliates. Finally, Item 20 (outlets and franchisee information) requires disclosures of the numbers of “company” outlets, which may actually be those of an affiliate.

“Completing the franchise disclosure document is a complicated, yet necessary part of the franchising process,” Pitegoff counsels. “A legal advisor who knows the franchisor’s objectives can help to make the process as painless and smooth as possible.”

About LeClairRyan
As a trusted advisor, LeClairRyan provides business counsel and client representation in corporate law and litigation. In this role, the firm applies its knowledge, insight and skill to help clients achieve their business objectives while managing and minimizing their legal risks, difficulties and expenses. With offices from coast to coast, the firm represents a wide variety of clients nationwide. For more information about LeClairRyan, visit http://www.leclairryan.com.

Bill Parness, Parness & Associates, +1 (732) 290-0121, [email protected]

Modal title

Contact PRWeb

  • 11AM ET Sunday – 8PM ET Friday
  • Contact Us

About PRWeb

  • About PRWeb
  • Partners
  • Partnership Programs
  • Editorial Guidelines
  • Resources

Why PRWeb

  • Why PRWeb
  • How It Works
  • Who Uses It
  • Pricing

Accounts

  • Create a Free Account
  • Log in
  • Contact Us

Do not sell or share my personal information:

  • Submit via [email protected] 
  • Call Privacy toll-free: 877-297-8921

Contact Cision

Products

About

My Services
  • All News Releases
  • Online Member Center
  • ProfNet
Cision Distribution Helpline
888-776-0942
  • Legal
  • Site Map
  • RSS
  • Cookie Settings
Copyright © 2025 Cision US Inc.